This is the book I have been waiting for for at least 15
years. It is an eminently readable statement of the revival of political economy
within the economics profession, as spawned by public choice scholars--such as
James Buchanan, William Niskanen, Mancur Olson, and Gordon Tullock--some 35
years ago.

"Politics and economics cannot be separated,'' William Mitchell and Randy
Simmons state in their preface. "Economies do not exist in a vacuum and neither
do politics. Political systems shape, sometimes control, and often misdirect
economic systems. Likewise, economic interests shape, sometimes control, and
often pervert politics.''

Those truths were accepted until about the 1920s, when theoretical "welfare
economists'' began devising elaborate theories of "market failure'' that
compared real-world markets to an unachievable utopian ideal called "perfectly
competitive equilibrium.'' If the real world comes up short, as it inevitably
does, the theorists condemn markets and call for government intervention.
Renowned welfare economists such as Arthur C. Pigou and, several decades later,
Paul Samuelson, Francis Bator, and William Baumol, paid no attention at all to
the possibility that government might also "fail.'' "Imperfect'' markets
justified government control of the economy.

Until public choice theory revived the study of political economy, this
biased method of analysis dominated the economics profession and still does to a
large extent. Mitchell and Simmons begin exposing that bias in Part|I of their
book, "Market Failures and Political Solutions: Orthodoxy,'' where they
carefully describe the various theories of market failure, including
externalities, public goods, imperfect competition, macroeconomic instability,
distributive inequities, and the existence of transactions costs. The authors
reveal the anti-market mentality of welfare economists who advocate "more taxes;
price controls; subsidies and tariffs; penalties for collusion; more controls
over private property; and, of course, more government-directed planning.''

Welfare economists are not the only ones to devise biased theories to
"justify'' their personal preferences for government intervention. Chapter 2
explains the role of the political science profession in creating an equally
unrealistic and utopian vision of the political process. Political activism is
supposedly "necessary for human moral development.'' Robert Dahl, an influential
political scientist, has long contended that the more special-interest groups
and government-imposed income transfers the better--because "countervailing
power centers'' will supposedly render politics "civilized, controlled, and
limited to decent human purposes.'' Is there anyone who knows anything about how
Washington actually works who could possibly believe that? Apparently, nearly
the entire political science profession does.

Then there is the field of "public administration,'' founded by Woodrow
Wilson, who believed that politicians and bureaucrats could be programmed to act
as "scientific managers,'' faithfully serving the public without regard to their
own self-interest. The only challenge is to provide these selfless creatures
with enough "scientific knowledge.'' Public administration, Wilson argued, "is
removed from the hurry and strife of politics'' and even "stands apart.|.|.from
the debatable ground of constitutional study.''

This incredibly naive theory swept the public administration profession a
century ago and is still dominant. Evidence of that dominance, the authors point
out, is abundant: the 1992 presidential election digressed to a debate over
whose central economic plan for the economy was best; Al Gore's book, Earth in
the Balance, is a plea for central planning in the name of environmentalism; and
in 1993, Rep. Gerry Studds proposed a bill that would create a National
Biological Survey (NBS) of "everything that walks, crawls, swims, or flies
around the country.'' The science adviser to the secretary of the interior
explained in the Wall Street Journal that the purpose of the NBS was to
"determine development for the whole country and regulate it all.'' (Didn't the
Soviets try that?)

Part II of Beyond Politics is an eloquent presentation of most of the major
tenets of public choice theory. Among the issues discussed in chapter 3 are why
voters are rationally ignorant; why special interests dominate political
decisionmaking; why politicians must pander to special interests at the expense
of the general public in order to succeed in office; why public money is used to
buy votes; why deficit spending is a politician's dream; and why bureaucrats
bungle.

Chapter 4 consists of a more detailed explanation of "the anatomy of
government failure,'' focusing on the "perverted incentives'' that confront
political decisionmakers under various electoral rules. After completing
chapters 3 and 4, it is clear that however many "market failures'' may exist
according to the standards of welfare economics, applying those same standards
to politics can only lead to the conclusion that government failures are far
worse.

Part III of Beyond Politics--"Case Studies in the Anatomy of Public
Failure''--surveys several areas of economics where public choice insights have
been revolutionary. The authors explain why the so-called free-rider problem has
been greatly exaggerated; why political control of markets leads to more, not
less, monopoly; why there is a need for constitutional restrictions on the
ability of politicians to plunder taxpayers; why "consumer protection''
regulation often harms the consumer; why environmental policy has frequently
degraded the environment while costing billions; and why politics renders
macroeconomic "fine tuning'' about as likely as a unicorn sighting.

In chapter 12, "Rediscovery of Markets, Competition, and the Firm,'' Mitchell
and Simmons show how insights from the Austrian school of economics, especially
the work of Friedrich Hayek, provide a devastating critique of the whole notion
of market failure. If one understands competition to consist of a dynamic,
rivalrous process of entrepreneurship, as the Austrians do, then the very
business practices that have been condemned by welfare economists as
inconsistent with "perfect'' competition--advertising, mergers, product
differentiation, and price undercutting, for example--are viewed as the very
essence of competition. Government intervention can only impede the beneficial
effects of market competition.

At this point Mitchell and Simmons should have introduced the work of the
late Murray Rothbard, the Austrian economist who has made the most devastating
theoretical critique of welfare economics. They also should have cited Roy
Cordato's recent book, Welfare Economics and Externalities in an Open Ended
Universe, and Tyler Cowen's edited volume, The Theory of Market Failure: A
Critical Reevaluation.

Beyond Politics is must reading for all who wish to understand the political
economy. It is the best exposition of public choice theory I know of for use in
undergraduate classes, and it is filled with hundreds of references that will be
especially useful to researchers who are new to the field. Mitchell and Simmons
have produced a most valuable addition to the literature on the institutions of
a free society.

Thomas J. DiLorenzoLoyola College, Baltimore

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